Cisco Systems, Inc. (CSCO) Q1 2026 Earnings Call Transcript

Cisco Systems reported a strong Q1 FY26, with revenue reaching a record $14.9 billion, up 8% year-over-year, and non-GAAP EPS growing 10% to $1.00, both exceeding guidance. The robust performance was driven by a 13% increase in total product orders, notably from significant demand for AI infrastructure, including $1.3 billion in hyperscaler AI orders, and a multi-year refresh cycle in campus networking. Cisco projects $3 billion in AI infrastructure revenue from hyperscalers for FY26 and sees a growing $2 billion pipeline for high-performance networking products in other segments. Despite a temporary revenue impact in security due to Splunk's shift to cloud subscriptions, the underlying business shows double-digit ARR and RPO growth, positioning the company for continued AI-driven expansion and operational leverage, as reflected in its optimistic Q2 and full FY26 guidance.

Analysis

Cisco Systems delivered a strong Q1 FY26, surpassing guidance with total revenue of $14.9 billion, up 8% year-over-year, and non-GAAP EPS growing 10% to $1.00. This robust performance was underpinned by a 13% increase in total product orders, primarily fueled by significant demand for AI infrastructure. Hyperscaler AI orders alone contributed $1.3 billion in Q1, with the company projecting $3 billion in AI infrastructure revenue from this segment for the full fiscal year.

Beyond hyperscalers, Cisco is leveraging a multi-year refresh cycle in campus networking, where new product launches are ramping faster than previous cycles, indicating strong enterprise investment in AI-ready infrastructure. The company also reported a growing pipeline exceeding $2 billion for high-performance networking products across sovereign, Neocloud, and enterprise customers, signaling broad-based AI opportunity.

While security revenue declined 2% due to a timing-related mix shift to cloud subscriptions for Splunk, underlying demand metrics like double-digit ARR and RPO growth remain strong, positioning the segment for future recovery. This strategic shift is expected to enable greater adoption and faster innovation delivery. Cisco reiterated its commitment to mid-teens long-term security revenue growth.

The company's operational leverage is evident in earnings growth outpacing revenue, supported by $3.6 billion returned to shareholders in Q1. Cisco's optimistic Q2 and full FY26 guidance, projecting revenue of $60.2-$61 billion and non-GAAP EPS of $4.08-$4.14, reflects confidence in its AI-driven strategy and disciplined financial execution.

Key Decisions for Investors

• Consider Cisco's strong positioning in the rapidly expanding AI infrastructure market, particularly with hyperscalers and the emerging sovereign/Neocloud segments, as a key growth driver.
• Monitor the acceleration of the campus networking refresh cycle, as it represents a significant multi-year revenue opportunity driven by AI readiness and security integration.
• Evaluate the long-term strategic benefits of Splunk's cloud transition, despite short-term revenue recognition impacts, given the strong underlying ARR and RPO growth and potential for increased customer adoption.
• Assess the company's consistent capital returns and operating leverage, which support shareholder value amidst strategic investments in high-growth areas.